Thailand Proposes Asia Pool $350 Billion for Crisis
Thailand Proposes Asia Pool $350 Billion for Crisis (Update1)
By Daniel Ten Kate and Shamim Adam
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Oct. 22 (Bloomberg) -- Thailand will propose that Asian countries pool $350 billion, or 10 percent of their foreign- exchange reserves, to help protect financial systems from a looming global recession.
Under the plan the Association of Southeast Asian Nations and Japan, China and South Korea would pool $150 billion to be tapped in case they need to protect their currencies and another $200 billion would be set aside to buy equities, bonds and fund infrastructure projects, Olarn Chaipravat, Thailand's deputy prime minister, said in an interview in Bangkok today.
The proposal by Thailand, which holds the chair of the 10- member Asean, comes as Asian governments struggle to find a unified approach to the global financial crisis. Central banks across the continent have already cut interest rates and guaranteed bank deposits to boost confidence.
``It is time for Asia to turn this financial sector crisis into real sector opportunity,'' Olarn said. ``Asia together would have to find ways and means and try to coordinate and implement the right policies.''
The Thai plan differs from one proposed by Philippine President Gloria Arroyo last week that suggests Asian governments set up a facility to lend to financial institutions facing liquidity problems or holding distressed assets. She didn't recommend how big that would be.
Yuan Conversion
Part of the cash would be used to buy either Treasury bills or bonds denominated in yen, Singapore dollars and Chinese yuan provided China's government eases restrictions on converting its currency, Olarn said.
``The message of this initiative is for China to consider whether or not it would open up its banking system,'' and offer a new convertible world currency, said Olarn, who will head to Beijing tonight for the Asia-Europe Meeting of government leaders. ``If this concept is accepted, it will be a new chapter in international finance.''
Olarn's plan builds on an existing discussion between Asean, Japan, China and South Korea about creating a pool of about $80 billion in Asian foreign-exchange reserves. Talks on this have been help up by dispute about how much each country should contribute.
Pooled Reserves
Once the pooled reserves in the Asian currencies are put in place, Asia would be assured enough funds to facilitate ``intra- Asia trade, investment and tourism to help cushion the expected deep recession coming from the U.S. and Europe,'' Olarn said.
The currency-pool idea is an expansion of an existing arrangement called the Chiang Mai Initiative that only allows for currency swaps between two nations. It is designed to ensure central banks have enough to shield their currencies from speculative attacks like those that depleted the reserves of Indonesia, Thailand and South Korea during the 1997 crisis.
In the decade since the Asian financial meltdown of 1997, the region's governments have accumulated about $4.4 trillion of reserves, almost two-thirds of the global total. Of that, Asean nations, along with China, Japan and South Korea, own about $3.6 trillion.
Olarn also proposed that Asian sovereign wealth funds pool as much as $200 billion to invest in the region's equities and bonds, as well as to finance infrastructure projects across the continent.
``Assuming the plan goes through, there could be a positive reaction in financial markets,'' said Tai Hui, head of Southeast Asian economic research at Standard Chartered in Singapore. ``The next question would be: how would they make decisions on which key markets and companies to invest in?''
The Asian financial crisis, set off by plunging currencies, led to the collapse of companies as they buckled under billions of dollars of debt, forcing Indonesia, Thailand and South Korea to turn to the International Monetary Fund for bailouts.
``We must do this for our own survival,'' Olarn said. ``The situation forces people to make decisions they have stalled for a long, long time.''
bloomberg.com
